Planning for the Wrong Retirement Age
Many people think of retirement age as 65. But with
Full retirement age matters for two reasons: One, it's the age when you can claim your full benefit with no reduction, and two, it's the age that unlocks a host of claiming strategies that allow you to boost your benefits. A person who claims at age 62 -- the earliest age you can take
And at full retirement age, you can use claiming strategies such as "filing and suspending" and "restricting an application to spousal benefits" that younger retirees cannot. These strategies can help a couple boost their total benefits. At full retirement age, you can also earn as much as you want while taking benefits -- early claimers are subject to an income threshold that can temporarily cause them to forfeit some benefits.
Not Working for 35 Years
Your
The other piece of good news: Those 35 years don't have to be consecutive. So if you had your highest earning years in, say, your forties, any years of lower-earning work later in life won't decrease your benefit. Say you want to work part-time in retirement after four decades of full-time work, your lower earnings from part-time work will not lower your benefit.
You can also work while taking benefits, and those earnings can be used to boost a benefit.
Claiming Too Early
The earliest age you can claim a
With life expectancies lengthening, for most people, having at least the higher-earning spouse delay benefits until full retirement age or beyond makes the most sense. That higher boosted benefit will last the lifetime of the longest-living spouse. Of course, in some instances, it can make sense to claim early. Singles might want to claim by full retirement age, and often lower-earning spouses might want to claim early since they will later switch to a higher spousal or survivor benefit.
Not Thinking of Your Spouse
If you are married, it's not just your benefit you should worry about. Instead, a savvy move is to coordinate the timing of both claims. You and your spouse can bring in some income while maximizing your total benefits. For instance, the higher-earning spouse could delay his benefit until age 70, so that benefit earns delayed retirement credits of 8% a year. In the meantime, the other spouse could take a spousal benefit to bring in some income while the couple waits for the higher earner's benefit to "grow."
But even more importantly, it's critical to consider your spouse's income after your death. If the higher earner delays his benefit until age 70, the surviving spouse at full retirement age or beyond can receive 100% of that boosted benefit, which will adjust for inflation and last her lifetime. And that extra income could go a long way if she lives well into her nineties or beyond.
Not Filing and Suspending
When you claim a
Singles also can benefit from this strategy. Filing and suspending at full retirement age allows a beneficiary some "insurance" when making the decision to delay. Say you get a serious medical diagnosis, and you decide you need to take benefits at age 68, instead of delaying until age 70. You could choose to get a lump sum going back to the date you filed and suspended. If your monthly benefit at full retirement age was
Not Running the Numbers for All Scenarios
Making assumptions often gets people into trouble and it's no different when it comes to claiming
Say the wife qualifies for a
Instead the couple could employ the "restricted application" strategy, which in this example would provide a larger total payout. The wife would take her
Not Claiming a Widow's Benefit
If you are a widow or widower, you can claim a survivor benefit off your deceased spouse's record. A survivor benefit can be claimed as early as age 60, but it will be reduced if you take it before your full retirement age.
At your full retirement age or later, the benefit is worth 100% of the benefit amount your spouse was receiving at the time of his death -- or what he would have been eligible to receive if he hadn't yet claimed his benefit. Any delayed retirement credits earned by the time of death will be included in the survivor benefit. And if you remarry after age 60, you can continue to take the survivor benefit.
If you are eligible for a survivor benefit, consider how it stacks up to your own. If delaying your own benefit to age 70 would cause it to exceed the amount of your survivor benefit, you might want to claim the survivor benefit first and switch to your own at 70. Otherwise, if your own benefit is significantly smaller, you might consider claiming your own benefit early at age 62 and then switching to the survivor benefit once you hit full retirement age -- the survivor benefit isn't reduced if you claim your own benefit early.
Not Staying Married at Least 10 Years
If you are on the cusp of divorce at, say, nine years and nine months, try to hold off on the date of the divorce decree for another few months. If you are now single but had been married for 10 years or more, you will be eligible for your ex's
Qualifying on an ex-spouse's record lets you engage in some of the same maximizing-benefits tactics that still-marrieds can use. For instance, at full retirement age, you could restrict your application to a spousal benefit and let your own benefit earn delayed retirement credits until age 70. If your own benefit was worth
When your ex-spouse dies, you can qualify for a survivor benefit off his record, too -- that's worth 100% of what your ex received at death. Using the example above, if the ex-spouse died receiving a
Assuming There's No Do-Over If You Claimed Early
Years ago, if you claimed
If you quickly regret the decision, you can withdraw your application within 12 months of when you applied. You pay back the benefits you received and then restart at a higher amount at a later time. But if you have passed that 12-months mark, you have a few other options. Once you turn full retirement age, you can voluntarily suspend your benefit -- you will forgo payments now but your benefit will earn delayed retirement credits until you restart it again.
As noted previously, working while taking a benefit can also make a difference. If those years of work replace zero or low-earning years in your top 35 years of earnings, your benefit can get a boost. And if you were working while claiming benefits early and lost some benefits to the income threshold known as the "earnings test," there's a silver lining -- those benefits are really only lost temporarily. Once you turn full retirement age, your benefit will be adjusted upward to account for those forfeited benefits.
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Rachel L. Sheedy is Managing Editor at Kiplinger's Retirement Report.